FASB, IASB Issue “Largely Identical” Guidance on Fair Value

FASB
and the International Accounting Standards Board (IASB) on Thursday
issued guidance on fair value measurement and disclosure
requirements that the boards said in a press release is “largely
identical” across IFRS and U.S. GAAP.

The
guidance, set out in IFRS 13, Fair Value Measurement,and FASB Accounting
Standards Update 2011-04, Fair Value Measurement (Topic 820)—Amendments to Achieve
Common Fair Value Measurement and Disclosure Requirements in U.S.
GAAP and IFRSs, completes a major
project of the boards’ joint work to improve IFRS and U.S. GAAP
and to bring about their convergence. The boards said the
harmonization of fair value measurement and disclosure
requirements internationally also forms an important element of
the boards’ response to the global financial crisis.

The
requirements do not extend the use of fair value accounting, but
provide guidance on how it should be applied where its use is
already required or permitted by other standards within IFRS or U.S. GAAP.

ASU 2011-04
supersedes most of the guidance in Accounting Standards Codification
Topic 820 (formerly FASB Statement no. 157), although many of the changes are clarifications of
existing guidance or wording changes to align with IFRS 13. It
also reflects FASB’s consideration of the different
characteristics of public and nonpublic entities and the needs of
users of their financial statements. Nonpublic entities will be
exempt from a number of the new disclosure requirements.

The
amendments in ASU 2011-04 change the wording used to describe the
requirements in U.S. GAAP for measuring fair value and for
disclosing information about fair value measurements. The amendments
include the following:

Those
that clarify the board’s intent about the application of
existing fair value measurement and disclosure requirements;
and

Those
that change a particular principle or requirement for measuring
fair value or for disclosing information about fair value measurements.

In
addition, FASB said that to improve consistency in application
across jurisdictions, some changes in wording were necessary to
ensure that U.S. GAAP and IFRS fair value measurement and disclosure
requirements are described in the same way (for example, using the
word shall rather than should to describe the
requirements in U.S. GAAP).

The
IASB said IFRS 13, Fair Value Measurement, will improve consistency and reduce
complexity by providing, for the first time, a precise definition of
fair value and a single source of fair value measurement and
disclosure requirements for use across IFRS.

“The
finalization of this project marks the completion of a major
convergence project and is a fundamentally important element of our
joint response to the global financial crisis,” IASB Chairman Sir
David Tweedie said in a press release. “The result is clearer and
more consistent guidance on measuring fair value, where its use is
already required.”

“This
update represents another positive step toward the shared goal of
globally converged accounting standards,” FASB Chairman Leslie
Seidman said in the press release. “Having a consistent meaning of
the term ‘fair value’ will improve the consistency of financial
information around the world.”

The
amendments in ASU 2011-04 must be
applied prospectively. For public entities, the amendments are
effective during interim and annual periods beginning after Dec. 15,
2011. For nonpublic entities, the amendments are effective for
annual periods beginning after Dec. 15, 2011. Early application by
public entities is not permitted. Nonpublic entities may apply the
amendments early, but no earlier than for interim periods beginning
after Dec. 15, 2011.